Cash burn is top of mind for executives right now as market turbulence continues to impact predictability. But businesses are bound to antiquated resources and are spending too much time on manual analytics. Meanwhile, inflation, geopolitical events and other market movers have the home-stadium advantage.
With all the chaos, at least there is March Madness just around the corner! Which got us thinking – cash flow management is like basketball.
Finance teams that create forecasts before automating bank data aggregation are like a basketball team that works on free throws before mastering the art of dribbling.
In the latest episode of the Fintech Corner podcast, “What Cash Management & Basketball Have in Common: The Secrets Behind the Stephen Currys of Finance,” Trovata CPO, Joseph Drambarean, sits down with Kevin Bell, Trovata’s Head of Client Solutions.
In this episode, they discuss:
- How surprisingly difficult it is for teams to calculate cash burn
- Tools for treasury and banks don’t speak the same language, much less talk to one another
- Finance teams get ahead of themselves with forecasting before mastering data management
- Once you solve bank connectivity issues, life gets way easier and fun
- Finance analysts are incentivized to find excess cash with today’s interest rates, putting money on the table to work
Here are three significant takeaways from the episode for leveling up your cash flow management:
1. A Cash Flow Playbook is More Important Than Ever
It’s been a tumultuous past few years and, while the tech sector has witnessed massive innovation and growth, mass layoffs seem to be hitting headlines every other day. Tensions are running high, which provides all the more reason to keep a microscope on cash from the top levels of the organization—having a view of what’s going in and out over the next few weeks and months is more important than ever before.
“First, we have a global pandemic on our hands, and then rather than things tanking for too long, in fact, it was a pretty positive environment for most, especially in the tech sector—money was easy to come by, funding was everywhere, stocks were going crazy,” Bell says. “And now we’re in this environment where it does feel like everyone’s waiting for the other shoe to drop a little bit and have started to see that.”
But cash flow doesn’t only matter to companies that are struggling now. It’s also ever more important to those in a position to capitalize on market opportunities and current interest rates.
“For organizations that are seeing those hard times and having to tighten the purse strings a little bit, it’s ever more important to have visibility and even be able to project what we expect things to look like across various scenarios as we go out over the coming weeks and months,” Bell says…
“And then for organizations that may be in a more fortunate position that still have quite a bit of cash on hand, how can they take advantage of the higher yield available in today’s environment to continue to let that money work harder for them?”
2. Bench the Legacy Cash Management Solutions
While spreadsheets have proven to be useful for as long as time, they’re not scalable, and they can too easily malfunction. Sharing spreadsheets with others who can make changes or break formulae can be anxiety-inducing and downright inefficient. Meanwhile, bank portals and other financial tools are clunky and limited.
“It’s wild to see that there’s still just a dearth of available tools that give you clarity around your liquidity needs,” Drambarean says, suggesting that organizations currently function in the Stone Ages.
Financial professionals must log into their various bank portals multiple times per day and do manual calculations to get their arms around their organization’s cash position.
In basketball, this would be equivalent to just getting your arms around the ball, so you can move and manipulate it and get it where it needs to be.
According to Drambarean, the biggest reason why teams struggle to get their arms around cash is that:
“The banks and also the tools don’t talk to each other—and they talk in different languages if they were to talk to each other, so consistency is a really big problem.”– Joseph Drambarean, Trovata CPO
And, even though corporate banking platforms are actively trying to catch up to consumer banking experiences (think: Mint), business leaders still have fewer insights into their cash flow than everyday consumers.
“Joining Trovata a year and a half ago now, I absolutely could not believe that this was how organizations were functioning primarily,” Bell says.
“It’s just shocking that these giant organizations bringing in hundreds of millions or billions in revenue have less of a view of their own cash than average Joe does of their monthly budgeting.”– Kevin Bell, Head of Client Solutions at Trovata
Even big-name companies like the Dells and IBMs of the world manage their cash in spreadsheets. With Trovata, however, cash flow management doesn’t have to be so complicated. Trovata offers AI-powered solutions to help you easily group accounts together, analyze various views, automate spend categories, and dive into the specifics of the transactions themselves.
3. Automated Cash Management Gets Your Head in the Game
Doing manual work to get an idea of cash flow not only takes time, but also holds you back from getting into the deeper analyses. Tools like Trovata allow you to make predictions further into the future by giving you automated insights and making smarter predictions.
“Once you have your arms around everything, you can start to predict the outcomes with more precision—and that would influence whether or not your behavior on yield and debt management could play out even more efficiently than doing it on a daily basis. The ultimate strategy here is: how much advance notice can you get on all of this?”– Joseph Drambarean, Trovata CPO
According to Bell, organizations have long been looking at 13-week forecasts but, with the right tools, they can even look at the 12 months ahead.
Of course, scenario planning can be cumbersome when done in traditional ways, such as with Excel. But Trovata improves forecasting and incorporates variance analysis to empower businesses with all the information they need to make informed decisions.
The Bottom Line
In the game of corporate cash management, cash flow forecasting “is the three-pointer,” Drambarean says. But, for too long, it’s been a complex challenge for businesses.
With Trovata, however, you can get smart on cash, react more efficiently in a more real-time manner, and give your business leverage.
To take home this basketball analogy, finance teams that want to master their cash management processes should:
- Be able to define their cash flows to get arms around cash (dribble)
- Measure them (do a layup)
- Forecast and obtain insights that allow you to borrow and invest more intelligently (shoot a three-pointer)
Bonus points if you can go from forecasting out from 13 weeks to 12 months and add scenario planning and variance analysis!
Listen to Joseph Drambarean and Kevin Bell explain the secrets behind the “Stephen Currys’ of finance” in the latest episode of the Fintech Corner podcast here.